The Australian Taxation Office on December 13 issued exposure draft legislation clarifying aspects of the tax rules that apply hybrid mismatches. Supporting draft explanatory material was also released.
The new legislation would apply to tax years beginning after January 1, 2019, except for tax integrity rules, which would apply to tax years beginning after April 2, 2019.
According to an ATO release, the legislation would make the following clarifications:
- clarify that the rules apply to multiple entry consolidated groups (in the same way as consolidated groups)
- clarify that, for the purposes of applying the hybrid mismatch rules, foreign income tax does not include foreign municipal or state taxes
- clarify the operation of the hybrid mismatch rules for trusts and partnerships
- clarify the operation of the dual inclusion income on-payment rule
- ensure that the integrity rule can apply appropriately to inbound financing arrangements that have been designed to circumvent the operation of the rules and specify that, in certain circumstances, the integrity rule can apply where other hybrid mismatch provisions have applied, and
- allow franking benefits on distributions made on Additional Tier 1 (AT1) capital instruments, where the distributions give rise to an entitlement to a foreign income tax deduction and the Commissioner is notified that the foreign income tax deduction will not be claimed.
The hybrid mismatch rules are designed to prevent multinational enterprises from avoiding tax or for obtaining or obtain double tax benefits by exploiting differences between the tax treatment of entities and instruments in different countries.
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